Sky New Zealand Acquires Warner Bros Discovery Channels for 60 Cents

Sky New Zealand has made headlines by acquiring Warner Bros Discovery’s local channels business for a mere NZ$1, significantly reshaping the media landscape in New Zealand.

Sky New Zealand Acquires Warner Bros Discovery Channels for 60 Cents

Sky New Zealand has acquired Warner Bros Discovery’s local channels business for a token sum of NZ$1 (60¢).

Dominating the New Zealand TV Market

The surprise deal positions Sky as New Zealand’s dominant TV media player, acquiring 100% of the shares in Discovery NZ from Discovery Networks Asia-Pacific, a subsidiary of WBD, on a cash-free, debt-free basis. This acquisition will grant Sky approximately 35% of the linear TV advertising market revenue share and 24% of the digital TV equivalent.

Deal Components

The agreement includes the free-to-air channel Three and its streaming platform, ThreeNow, alongside a variety of other linear and free ad-supported streaming television channels such as HGTV in New Zealand. A multi-year content supply arrangement for WBD content to its former channels has also been established.

Exclusions from the Agreement

Notably, the HBO Max and Warner Bros International Television Production businesses are excluded from this agreement and will remain with WBD, which is focused on expanding its international streaming service globally while grappling with the challenges of traditional TV economics.

Transition Plan and Leadership

Sky and Discovery NZ are collaborating to develop a transition plan that will integrate Discovery NZ’s team into Sky in the coming months. Integration costs are projected at NZ$6.5M. Juliet Peterson, Vice President and Head of Networks at Discovery NZ, will continue to lead the business, reporting to Sky CEO Sophie Moloney.

Financial Implications

In a presentation to shareholders, the NZX-listed Sky stated that the deal would yield an immediate revenue increase of NZ$95M, positioning the company as “Aotearoa NZ’s most engaging and essential media company.” Discovery NZ is anticipated to deliver EBITDA of “at least” NZ$10M by full-year 2028, with underlying free cash flow expected by the end of next year.

Regulatory Approval

The deal is expected to close on August 1. The New Zealand Commerce Commission has been confidentially notified of the deal and has indicated it does not intend to intervene.

Strategic Importance

“This is a compelling opportunity for Sky that directly supports our ambition to be Aotearoa New Zealand’s most engaging and essential media company. It positions us to scale faster, accelerates our growth, and diversifies our revenue streams, particularly in advertising and digital,” said Moloney. “Acquiring the established and fast-growing ThreeNow BVOD platform adds a vital component to Sky’s portfolio.”

Challenges in the Industry

WBD’s linear and pay-TV channels have faced significant losses due to declining TV advertising revenue. WBD APAC President James Gibbons stated that 2023 saw the largest year-on-year drop in 30 years, with NZ$74M of TV ad revenue disappearing.

Conclusion

“While this business is not commercially viable as a standalone asset in WBD’s New Zealand portfolio, we recognize the value that Three and ThreeNow can bring to Sky’s existing offerings,” said Gibbons. Moloney emphasized that Sky is uniquely positioned to leverage this opportunity to accelerate its growth strategy.

Sky NZ was founded in 1987 and became a pay-TV player three years later, with Rupert Murdoch’s News Corp holding a significant share until selling in 2013.